WalMart: Monopsony Destabilizes Economies as Much as Monopoly Does

Author's Note: Some 30 years ago, as an undergraduate studying Economics, I took a course in Industrial Organization and Public Policy. I have been mulling some of the ideas I first encountered in that course ever since. The following in the product of just such mulling.


Many Americans are at least passing familiar with the 19^th-century rise of corporate monopoly power in this country to set prices when selling and the subsequent development of the anti-trust regulations and legislation that came about to limit the power of monopolies. Far fewer Americans, however, know about the flip side of monopoly: monopsony. Put bluntly, a monopolist controls the prices of goods and services it sells. By contrast, a monopsonist controls the prices of goods and services it buys.

Just as it is in the interest of a well-run capitalist economy to prevent the formation of monopolies, so too it should be the policy of those same economies to prevent the creation of monopsonies. Too much power to set prices when purchasing goods and services will produce the same destabilizing influence as too much power to set prices when selling those same goods and services.

WalMart may be starting to take on the least attractive qualities of both monopolist AND monopsonist. As the sole brick and mortar retailer for consumer staples in many communities across the country and increasingly the globe, WalMart’s ability to set prices is so common sense as to hardly require mentioning. But in many of those same communities, WalMart functions as a monopsonist purchaser . . . of labor. In many communities, WalMart is the only employer of note. Workers either work at WalMart or they don’t work.

If one thinks of a labor union as a voluntary monopoly on labor, meaning the union exerts solitary pricing power for labor for all its members in the various economic contexts in which it operates, it seems clear why labor unions would be desirable from a public policy perspective. Unions’ monopoly power as a seller of labor balances the might of WalMart and other giant monopsonist buyers of labor. I have left for another discussion consideration of WalMart’s monopsonist power as a buyer of products. Much anecdotal testimony exists as to how WalMart can threaten the existence of suppliers who fail to satisfy its pricing targets. Again, this anecdotal testimony suggests, if it does not prove definitively, that monopsonist power, whether to purchase labor or products, destabilizes markets. Policy makers should act strongly to curtail monopsony power. Failing that, policy makers should augment unions’ powers to organize and bargain collectively, if only to provide a necessary stabilizing balance to monopsony power.